Why has renting become so expensive in Canberra?

Canberra's rapid population growth is combining with record low interest rates and Australia's highest average incomes to make national capital the most expensive capital city in the country to rent a house.

The ACT's population sprinted past 420,000 earlier this year on the back of the second-fastest growth rate in the nation.

National Centre for Social and Economic Modelling director Professor Robert Tanton said more people moving to Canberra meant more demand for housing, which pushed up prices.

"The other thing that's coming into it is interest rates, which have been low the last year or so," Professor Tanton said.

"That essentially means more investors can get into the market and that puts additional pressure on the price of houses and apartments because because [investors] can afford a higher price than people who are just getting into the market.

"The tax benefits for those properties, negative gearing and things like that, are quite an incentive."

He said investors who could afford the higher prices in turn charged higher rents to cover their mortgage payments.

Domain's most recent State of the Market Report, for the March quarter, showed Canberra's median weekly rent for houses was now $570. This was $30 a week more expensive than Sydney, which was the next most expensive capital city in Australia.

RELATED NEWS:

"Tenants have been faced with three-and-a-half-years of growing rental prices, stretching affordability by outpacing wages growth," the report said.

Canberra was also the second-most expensive Australian capital city to rent an apartment, on the back of almost four years of rising unit rents and a development boom in the national capital. However, the median weekly price to rent an apartment had experienced a quarter-on-quarter drop of 1.1 per cent, taking it to $465.

Professor Tanton said there "wasn't a lot out there in Canberra" for people in the second quintile of income - those who are in the bottom 40 per cent of owners but not the lowest 20 per cent.

He said these people struggled to afford what was on offer in a city with the country's highest rental prices and fell through the cracks because they generally didn't qualify for rent assistance from the Commonwealth.

Professor Tanton's colleague, Dr Yogi Vidyattama, said he believed Canberrans felt more secure than residents of other cities, and for that reason were often inclined to fork out amounts of money for housing that landed them in housing stress.

Both academics said affordable housing was a complex problem with no one solution, noting that the ACT government was funding several housing initiatives like Common Ground, a 40-unit complex in Dickson that provides accommodation and support services to break the cycle of homelessness.

An ACT government spokeswoman said it was progressing a number of reforms to make renting fairer, including examining changes to occupancy agreements.

The government has already passed legislation protecting tenants from excessive rent increases, strengthening their rights to have a pet, allowing them to make minor modifications to their home and making it easier for them to break leases without incurring significant costs.

As well as providing public and community housing, the government also has a program that allows individuals earning up to $94,000, or couples earning a joint amount of up to $125,000 to access an interest-free loan to pay a rental bond and help them rent privately.

"This new program will mean that students, families and young couples won't have to worry about covering the bond upfront when they can access an interest free loan for up to two years from the ACT government," the spokeswoman said.

"A rental bond shouldn't be a barrier to renting a home."